Open Source: Predicting a Happy New Year

From sports to gossip to business, it is a time-honored New Year’s tradition for columnists to prognosticate on what we can expect in the coming year. Tabloids tell us which celebrity marriages will break up, where aliens will appear next, and what famous personalities will dominate the news. Fortunately for the tabloids, not too many readers bother to compare their predictions a year later with what actually happened.

So in the grand tradition of columnists everywhere, let’s see what our crystal ball predicts for 2005. Perhaps you will revisit this column a year from now and compare my predictions with what actually happened. My prediction is that nobody will, but just in case, I’ll play it safe and stick with a few sure things.

Open Source Is Open for Business

Open source will become respectable for big business. It is true that many big businesses already have respect for open-source software, such as IBM, Oracle and Sun. Even Microsoft has developed a healthy respect for open source as a formidable adversary.

However, many big companies still have policies against using any open-source software. For some, the issue is not even on their radar. A year from now, there may still be companies with policies banning open-source software. But one way or another, every business is going to have it on their radar, and every CEO is going to care.

Disclosures Become Standard Negotiating Procedure

Typically, software buyers of custom, semi-custom or other software that involves negotiation between buyer and seller negotiate over software features, price and timing. In 2005, expect to see open-source details and disclosures become a standard part of the negotiations.

When software buyers write checks for five figures or more, they expect to be able to get in writing delivery dates, warranties, service agreements, etc. In those markets, expect software buyers to demand full disclosure of which parts were not entirely developed by the seller and subject to other licenses, especially GPL’ed code that is incorporated into the deliverables. This is only fair. In the past, buyers could safely assume that the sellers had all rights to the software they were selling.

With open source, distributed development is a viable method of generating software, so buyers are more likely to be offered software solutions that incorporate open-source licensed code. Often a small company trying to break into a new market does not have much leverage when trying to make a sale. These companies should consider open-source issues ahead of time in order to let potential customers know upfront the implications of any open-source code used in the products or services their sales force is pitching.

CEOs of such companies should not be surprised to see their biggest customers sending them an open-source questionnaire with their term sheets.

Acquirers Will Care

Legal teams doing their due diligence start with checklists. Typically, the acquiring party’s legal team will start off by going down their checklists and following up with any responses that diligent reviews seem to indicate. In the area of intellectual property, that usually begins with checking to see if key employees have signed invention agreements, and if the company’s patent applications hold water.

In 2005, expect to see all legal due diligence checklists add a section covering open source, checking for both inbound and outbound open-source licenses. So now, if you get in position for an acquisition (or a major investment), the process will go quicker if your open-source licenses are documented, along with employment agreements, patent filings and any other documents typically asked for by a due diligence team.

Wall Street Will Care Too

This prediction is not exactly going out on a limb because it has already happened. Take Decatur Jones Equity Partners, for example. They put out a weekly newsletter analyzing companies that are involved with open source in some way or another.

Some of their coverage is the same as with any other industry segment, such as considering revenue estimates, earnings per share, and how the numbers might influence future stock prices. But other coverage is open-source specific, such as investment tips that hinge on increased Linux deployment and large-scale adoptions of open-source alternatives.

Presently, some open-source investments might be over-hyped and go the way of the dot-com busts … and the multimedia busts before that … and the chip busts before that. However, it is encouraging to note that getting revenue from products and services is becoming the focus rather than assuming that market share and buzz will keep companies going indefinitely.

So it is safe to predict that we’ll see increased profits generated by companies with open-source products and services, but we’ll also see more investment advice and analyst coverage of open source as its own segment.

Legal Advisors Will Become Commonplace

When I tell people that my law firm has an open-source practice group, other lawyers ask me how anyone can afford legal advice if they are giving away software for free. I’ll get that question less and less in 2005, because more lawyers will be paying more attention to the open-source community and the business models that can survive without requiring per-copy shrinkwrap licenses.

When open source meant a lone programmer spending a few weekends cranking out some code, it really didn’t matter what the law was. If someone used code improperly, a quick polite e-mail was enough to resolve the situation. However, when an operating system or key component to a company’s business plan depends on some interpretation of an open-source software license, you better believe it matters what the law is.

Let’s face it, open source is big business. Big business means big risks, and a big risk means it is cost effective to integrate legal advice into business strategy.

In giving advice, lawyers familiarize themselves with the applicable statutes and regulations, and then look at previously decided cases to fill in the gaps. With open- source legal issues, there still are too many gaps and not enough case law. Typical advice to a client involves explaining the applicable law, which is usually well-documented.

Even experienced consumers of legal services may find it hard to understand that now, part of the advice has to be based on a third component, namely the opinions of the open-source community, an unrelated group whose membership might not be well-defined. So far, it seems to be working, but I predict more legal skirmishes relating to open source in 2005 and long term, with community customs being adopted into case law as a result.

Happy New Year

If my crystal ball is accurate, then 2005 should be a very interesting year for the open-source community. More big players will get into the act. More end users will consider switching platforms. More consumers will be more confused by more complicated legal wrangling over who owns what. You don’t have to be Kreskin to predict that scenario. Nevertheless, it will be interesting to see how it all turns out a year from now.

Here’s hoping that your 2005 is healthy and prosperous. Enjoy the ride.